NCLT Can't Refer To Arbitration U/S 8 Of The A&C Act While Exercising Powers U/S 7, 9 And 10 Of The IBC: NCLAT Principal Bench

Factual Background

The Appellant and the Respondent entered into a Mater Service Agreement (MSA) for the supply of a specified quantity of copper cathodes, wherein the Respondent was required to place purchase orders for the supply of the material and the Appellant was required to supply the material to the Respondent. Appellant was required to make payments to the Respondent within 30 days from the date of the relevant invoice.

The Respondent failed to make payments to the Appellant in accordance with the terms of the MSA on several occasions, thus the Parties entered into a Settlement Agreement, extended the MSA and provided for the full and final settlement of dues payable by the Respondent to the Appellant for the supply of copper cathodes.

The Respondent paid part of the amount agreed in the Settlement Agreement, but failed to make payments of the remaining amount.

Subsequently, a demand notice was sent to the Respondent for payment of the amount due. In its reply, the Respondent denied that any amount was due to the Appellant. Thus, the Appellant filed an application u/s 9 of the IBC for initiation of CIRP against the Respondent.

The Adjudicating Authority dismissed the Section 9 application filed by the Appellant on the grounds that-

• -Unpaid amounts under a Settlement Agreement do not constitute an 'operational debt' u/s 5(21) of the IBC.
• -The NCLT has a limited power u/s 7, 9 and 10 of the IBC and cannot refer the matter to Arbitration u/s 8 of the Arbitration and Conciliation Act.

Contentions Of The Appellant

The Appellant contended that the Settlement Agreement was an acknowledgement of the debts arising under the MSA and an 'operational debt' does not lose its character simply because a Settlement Agreement was entered into in relation thereto.

It was further contended that the Respondent has acknowledged its liability to pay the outstanding amount in the Settlement Agreement.

Decision Of The Appellate Tribunal

The NCLAT upheld the decision of the Appellate Authority that the default of instalment of 'operational debt' as it does not fall within the definition of additional debt as per Section 5(21) of the IBC.

The Appellate Tribunal also upheld the finding of the AA that the role of the NCLT u/s 7, 9 and 10 of the IBC is very limited and that the AA cannot refer the matter to Arbitration u/s 8 of the Arbitration and Conciliation Act, 1996 and dismissed the appeal filed by the Appellant.

Trafigura India Pvt. Ltd. V. TDT Copper Ltd.

Counsel for Appellant: Mr. Krishnendu Datta, Sr. Advocate with Ms. Anjali Anchayil, Ms. Avni Sharma and Ms. Mehak Khurana, Advocates

Counsel for Respondent: Mr. Mayan Prasad, Advocate.

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